ECONOMY

18 Ways to Jump-Start Economic Growth: Spending Money Edition

By Catherine Hollander and Jim Tankersley

With markets trampolining up and down, Washington lawmakers appear to be getting the message that the U.S. economy needs more help—specifically, a renewed push for job creation. President Obama said on Thursday that he would propose new ideas for job creation on a weekly basis.

“Americans need jobs,” Rep. John Larson, D-Conn., the chairman of the House Democratic Caucus, wrote in a Dear Colleague letter this week. “We hear this message every time we go home, we read this message in every e-mail and letter that we open, and we discuss this message in every town hall meeting that we hold. Unfortunately, it seems that the more we hear the message, the more we shift our attention to other matters.”

Larson wants Congress to create a super committee—modeled on the one now being formed for deficit reduction—to hash out policies to return the United States to full employment.

If such a committee were to take shape, what “outside the box” policies should it consider? National Journal posed that question to economic experts across the ideological spectrum—seeking out both policies that would not affect the budget deficit (for political feasibility reasons) and those that would (because many respondents insisted, as the Center for American Progress’s Michael Ettlinger put it, that “it’s the economy, and the economy costs money”).

Ideas That Would Increase the Deficit

1. Increase government spending for now.

Washington needs to focus on short-run solutions to get the economy going, New York Times columnist and economist Paul Krugman said in an op-ed on Friday. Extra government spending should be used to rebuild schools, roads, and water systems, among other projects. Money put into mortgage forgiveness and refinancing could also help reduce household debt, Krugman said. The Federal Reserve should put forth an “all-out effort” to get the economy moving by bumping up inflation to alleviate debt problems. Most importantly, Washington needs to focus on short-run ways to boost the economy, not long-term entitlement reform. “When you’re bleeding profusely from an open wound, you want a doctor who binds that wound up, not a doctor who lectures you on the importance of maintaining a healthy lifestyle as you get older,” Krugman said.

2. Replace the corporate income tax with a VAT.

The corporate income tax should be replaced with a 6 percent value-added tax, former Sen. Fritz Hollings, D-S.C., said in a Huffington Post op-ed this week. The average corporate tax rate is 23 percent, Hollings wrote, so the replacement would amount to a tax cut. And unlike the corporate tax, the VAT is rebated on export and would promote exports. It would also allow for elimination of some of the Internal Revenue Service, since the VAT is self-enforcing. “Cutting taxes with a VAT takes the government off steroids, allows corporate America to make a profit in the United States, stops the hemorrhage of offshoring jobs, promotes exports, cuts the size of government, produces billions to pay down the debt, and creates millions of jobs,” Hollings said.

3. Broaden the tax base.

Broadening the tax base would allow for significant cuts in marginal tax rates on saving and investment, R. Glenn Hubbard, the dean of Columbia’s Business School and chairman of the Council of Economic Advisers under President George W. Bush, said in a Wall Street Journal op-ed on Friday. The reduction in marginal tax rates on saving and investment and work and entrepreneurship would lead to higher wages and output, he said. It could raise the gross domestic product, which in turn could lead to reductions in the jobless rate. It would also reorient the nation’s economy toward investment and exports rather than consumption and government. “[T]ax reform is a necessary precondition for any serious national discussion of long-term deficit reduction,” Hubbard wrote.

4. Start a tariff holiday.

Waiving tariffs on home goods such as clothes, shoes, TV sets, luggage, and a handful of other products would reduce store prices and encourage more shopping while having only a modest budget impact, according to Ed Gresser, the director of the ProgressiveEconomy project at the GlobalWorks Foundation. This would give the labor-intensive businesses that traditionally employ a large number of young people, such as retailers, a reason to hire, he said. Tariff-waiving could even be limited to goods manufactured outside of the United States. Gresser cited the Affordable Footwear Act and U.S. Outdoor Act as examples.

5. Or a sales-tax holiday.

In the same vein as waiving tariffs on home goods, the 45 states with sales taxes could eliminate or sharply cut them for a year and Congress could pick up the revenues from those states. The money would be repaid to the federal government later, Gresser said, resulting in a short-term deficit increase followed by a minor long-term increase while extending the tariff holiday’s impact to restaurants as well as retailing. The tariff and sales-tax holidays would help tackle unemployment among younger and less-educated people who have been hard-hit by the recession by boosting the labor-intensive restaurant and retail sectors of the economy in which they usually hold a large share of jobs.

6. Implement a pumped-up hire tax credit program.

The standard version of this idea is that businesses would receive a $5,000 credit for hiring a new employee, and part of his or her salary would be subsidized. Michael Greenstone, director of the Hamilton Project and a senior fellow in Economic Studies at the Brookings Institution, said the U.S. should implement that program—“but on steroids.” Companies could receive as much as $10,000 for hiring, and up to 10 percent of new hires’ salaries could be subsidized. Unlike the payroll tax cut, this policy would only affect new hires and would target the country’s employment issues.

7. Borrow money to get people working.

Borrowing at the country’s historically low interest rates and putting people to work is the “obvious solution,” according to Dennis Kelleher, president and CEO of Better Markets. The government should borrow $1 trillion or more, spending half to put unemployed people to work in a WPA-type program with a conservation corps and a focus on improving the country’s infrastructure. The other half should be used to pay a quarter of the salary of each new private-sector hire for three years on a first-come, first-serve basis.

8. Use work-sharing as an alternative to unemployment insurance.

Dean Baker, codirector of the Center for Economic and Policy Research, said the best way to increase employment would be using work-sharing as an alternative to unemployment insurance, in which people are paid not to work. In a work-sharing program, employees are given half of the pay they lose as a result of working fewer hours—for example, if they had 20 percent fewer hours, they would receive 10 percent less pay. By staving off 10 percent of the 2 million layoffs that occur each month, the effect would be the same as creating 200,000 jobs, he said, adding that Germany had used the same policy with “enormous success.” “This seems an obvious winner when it comes to keeping people at work at a minimal cost,” Baker said.

9. Implement an import-recapture strategy.

New funding for a Bureau of Labor Statistics study could identify the industries where U.S. companies are “close to competitive,” said Michael Mandel, chief economic strategist at the Progressive Policy Institute. Targeted subsidies and tax cuts for those companies could help close-to-competitive industries regain market share from imports and create jobs at a relatively low cost, he said.

10. Launch "green banks."

Mark Muro, senior fellow and director of policy for the Metropolitan Policy Program at the Brookings Institution, said financing clean-tech scale-ups would be a relatively low-cost investment that would be paid back to the Treasury Department over the longer time. “Green banks” such as the Clean Energy Deployment Association, which would provide credit enhancements, loans, and loan guarantees to facilitate less expensive lending in the private sector, and the Energy Independence Trust, which would expand access to low-cost financing, would be “a cost-effective initiative with large returns,” Muro wrote in a recent Brookings report.

11. Capitalize an infrastructure bank.

The Infrastructure Financing Authority proposed by Sens. John Kerry, D-Mass., and Kay Bailey Hutchison, R-Texas, is a good idea, Muro said, because it would be revenue neutral after the $10 billion start-up fee. The bank would provide loan guarantees and direct loans for large infrastructure projects. President Obama called for the creation of an infrastructure bank in a speech earlier this month.

12. Provide product warranty or performance insurance on new tech.

The financing of new technologies could be accelerated through product warranties and performance insurance, according to Muro. The program would be cheap and would help promising technologies grow rapidly through quick financing by making them less risky. “Providing such a risk backstop—akin to crop insurance—to emergent game-changing technologies could help get things moving relatively fast—and at low cost,” he said.

13. Stop laying off government workers.

Michael Ettlinger, a budget and fiscal policy expert at the liberal Center for American Progress, said the No. 1 thing the administration could do right now to improve the economy would be to stop laying off government workers.

14. Allocate money for the equivalent of Social Security benefits a year early.

Ettlinger emphasized the need for economic policies to focus on easing the burden on the middle class. He proposed allocating money to let people get the equivalent of their full Social Security benefits a year early, which would allow them to retire sooner and make room for younger people to enter the job market. It would also help people out who have been laid off but are close to retirement age.

15. Put in place a one-year student loan repayment holiday.

A one-year student loan repayment holiday would ease the burden on recent graduates who either could not find a job or who found low-paying work, Ettlinger said. It would also help out middle-class parents, many of whom are picking up the tab. It wouldn’t cost the government much to institute the holiday, he said.

16. Bring back the Making Work Pay tax credit.

Bringing back the Making Work Pay tax credit would help the middle class while encouraging businesses to hire and invest, Ettlinger said. Making Work Pay, which was a provision of the American Recovery and Reinvestment Act of 2009, provided a refundable tax credit for working individuals in 2009 and 2010, resulting in larger paychecks for many wage earners.

17. Institute a tax credit targeted at small businesses.

A tax credit targeted at small businesses would help them expand their payrolls, said Karen Dynan, vice president and codirector of the Economic Studies program at the Brookings Institution. “The challenges facing Main Street are underappreciated, with so many of the channels that small-business proprietors have traditionally relied on to sustain and grow their businesses—home equity, credit cards, and family savings—in short supply,” she said, adding that the credit should be tied to the wage bills businesses already report to minimize additional paperwork and eliminate the need to hire accounts or lawyers to take advantage of the credit.

18. Lower the corporate tax rate.

Another positive step would be lowering the corporate tax rate, according to Aparna Mathur, an economist and resident scholar at the right-leaning American Enterprise Institute. A lower rate could result in an increase in capital flows and investment, higher worker productivity, higher wages for workers, and higher corporate tax revenues, all of which would help the economy, she said.